Billionaire hedge-fund investor Leon Cooperman thinks the 10-year-old great bull stock market is far from over, which to him means there is plenty of upside left. Quite simply, bull markets don’t end when stocks reach fair valuations, which is the case today, the CEO of Omega Advisors said. But in order to get the most out of a market that still has room to climb, he offers three picks with attractive looking valuations, according to a recent story from Business Insider.
What it Means for Investors
“As much as I think the S&P is adequately valued, I’m finding a lot of companies that are very attractively priced,” he said. “Market cycles don’t end at fair value; they end at overvaluation.” He suggested investors consider Cigna Holding Company (CI), WPX Energy Inc. (WPX), and New Media Investment Group Inc. (NEWM), as three stocks offering growth that also look relatively undervalued compared to the rest of the market.
- Fair-valued market means still plenty of upside left.
- Cigna could see EPS climb up to 14%.
- WPX Energy trades at only half its net asset value.
- New Media gets a quarter of revenue from digital.
Cigna's EPS Growth
Shares of health insurance provider Cigna are down nearly 17% this year. They obviously missed the rest of the market rebound, but Cooperman says the company’s earnings are growing much faster than the rest of the market. Despite political risk, earnings per share (EPS) could climb somewhere between 12% and 14%, fueled by membership and price growth. He added that Cigna will generate $8 billion of free cash flow next year and should see its debt-to-capital ratio improve soon following a recent acquisition.
WPX's Hidden Value
Oil and gas producer WPX Energy is another company that missed the year’s stock rally with shares down nearly 9%. The company recently announced a large stock buyback and that it would start generating free cash flow in the second half of the year, two positive developments. Noting that he thinks the company is trading at only about half its net asset value, Cooperman added that there will likely be consolidation in the industry and WPX Energy’s stock price did not yet reflect that.
New Media's Digital Upside
Despite a bit of a comeback over the past month and a half, New Media is down nearly 20% for the year. Being in the problematic print media business has not helped the stock, but since the company now generates a fourth of its revenue from digital operations and revenue was starting to improve, Cooperman thinks the stock looks inexpensive relative to what he sees as significant potential returns. He also gave high praise to the company’s management, the members of which have been buying the stock.
As for investments to avoid, Cooperman flatly tells investors to avoid putting money into private equity firms, which admittedly are hedge fund rivals. Among other criticisms, he argues that private equity firms have raised billions in investor cash that has yet to be deployed, but are still collecting hefty fees.